SBA OHA: Ownership and Control are Not the Same in the WOSB Program

A company learned the hard way that just because their business is majority owned by a woman, it doesn’t mean they are a Women-Owned Small Business (WOSB) in the eyes of the SBA. The question is one of both ownership and control.

The case is SBA No. WOSB-113. In December 2016, Joint Information Network (JIN) submitted an offer for a contract to provide software engineering and database services in support of the U.S. Navy Naval Information Warfare Center (NIWC). The contract was to be awarded directly to a WOSB on a sole source basis. The contracting officer (CO) awarded JIN the $30 million contract in January 2017. The contract period for performance ended April 17, 2020, but, as of this decision, the contract was not closed. When JIN submitted the offer, it was a partnership owned 60% by Ms. Jihong Jin and 40% by her father, Dr. Yahne Jin, per a partnership agreement from April 2016. The partnership agreement also stated that no partner could enter into a contract for JIN without the approval of the other partner. In other words, while Jihong was the majority owner, her and Yahne had to agree in order to have JIN sign any agreements. In April 2019, the agreement was modified to give Jihong only 51% ownership, but status as sole Managing Partner, giving her full control of JIN.

In October 2020, based on a report from the NIWC’s Office of Inspector General, the CO initiated a protest of JIN’s WOSB status, stating that JIN was not at least 51% owned and controlled by one or more women who are U.S. citizens. In February 2021, the SBA’s Director of Government Contracting (DGC) officially determined that JIN was not an eligible WOSB for the contract, stating that while JIN was majority owned by a woman, it was not controlled by a woman at time of proposal submission and performance of the contract. We touched on a similar case back in 2017.

JIN appealed, arguing that the company had represented itself in good faith, believing Jihong’s majority ownership and her having the highest position in the company was enough to indicate she had control. They further argued that Jihong had final say and was the only individual managing the business’ daily operations and decisions. Furthermore, when JIN became aware of the potential issue even before the protest, the owners had modified their partnership agreement to give Jihong sole control in April 2019.

In its decision on the appeal, the SBA’s Office for Hearings and Appeals (OHA) turned to 13 CFR § 127.200 through 13 § CFR 127.202. The OHA noted that for a company to qualify as a WOSB, the business must be “not less than 51 percent unconditionally and directly owned and controlled by one or more women who are United States citizens.”  “Owned and controlled” are treated as distinct and separate requirements, 13 § CFR 127.202 specifically states: “In the case of a partnership, one or more women, or in the case of an EDWOSB, economically disadvantaged women, must serve as general partners, with control over all partnership decisions.” A woman must also hold the highest officer position in the business and have the experience needed to do such properly. The regulation further requires that men cannot exercise actual control or have the power to control the business if it wishes to be eligible for WOSB status. In other words, women must own the business and be in control both on paper and in practice.

The OHA concluded that “Dr. Yanhe Jin legally had the power to control (JIN), as (the agreement) required the assent of both Managing Partners of the firm for all business decisions.” The partnership agreement in place required the assent of both Jihong and Yahne, a man, for all business decisions. While this was later rectified by the April 2019 partnership agreement, “at the time (JIN) submitted its offer in response to the subject procurement on December 16, 2016 and until April 10, 2019, Dr. Yanhe Jin had the power to control (JIN), which the regulations explicitly prohibit.”  As a result, the OHA affirmed the DGC’s decision finding JIN ineligible for WOSB status at the time the contract was awarded.

The lesson is clear: “Owned and controlled” isn’t redundant language, it is two separate requirements. The women must not merely have majority ownership, they must be able to control the business by their own decisions without the input of a man. Having a woman as a general partner alone does not make a business eligible for WOSB status. Along with being a small business, she must directly own and actually control the business.

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